Our view on living expenses and what inquiry is needed

  • on September 26, 2018
  • in Blog

A common point of contention for many Finance Brokers relates to Living Expenses and what to use or accept during the credit assistance process.    

We certainly understand this confusion given we operate within a guideline-based framework, however at SalesKey we take the following view…  

Firstly, we wish to point out ASIC’s stance is clearly documented in RG209 (s.30); where they state “the obligation to make reasonable inquiries about the consumer’s financial situation requires you to find out about the particular consumer’s current situation. This involves obtaining information about the consumer’s actual income, expenses and other circumstances that are likely to affect their ability to meet the financial obligations of the proposed credit contract or consumer lease”.   

In other words, you cannot simply accept what a customer tells you!  As a finance professional, the onus is on you to seek extra details and in turn to ensure that the loan you are possibly about to suggest is not unsuitable for the customer’s financial situation.   

We therefore recommend a consistent process that enhances accuracy.  To this end, we believe an application form that captures a granular level of living expense categories is a must.  Whilst there is no clear ‘right way’, we believe that seeking detail in the following categories is a great place to start: 

  1. Child Care & Maintenance 
  2. Food and Supermarket items  
  3. Connections (i.e. phone, internet, cable TV, etc) 
  4. Utilities / Home expenses 
  5. Rates and/or body corporate (owner occupier) 
  6. Rates and/or body corporate (investment) 
  7. Current rental expenses  
  8. School fees, uniforms, education 
  9. Entertainment/Holidays  
  10. Private Health Insurance 
  11. General health & wellness 
  12. Life/Trauma/Income Insurances 
  13. Motor vehicle registration & insurance 
  14. Repairs/Servicing/Tyres 
  15. Fuel/Tolls/Parking/Taxi/Uber/Other 
  16. Other Discretionary expenses 

Whether you use this exact list or something similar, it’s the process and accuracy that matters.  You should at least prompt your customers with your customised expense categories and encourage them to be realistic.   

If you don’t believe us, see below for ASIC’s guidance in s.38 of RG209… 

“We expect that you will be able to demonstrate that you have adequate processes in place to ensure that you make reasonable inquiries about the consumer. If you do not have appropriate processes in place, it will be difficult for you to show that you are meeting your responsible lending obligations”. 

DO 

DON’T  
  • Enhance accuracy by collecting categorised general living expenses.  
  • Simply use what the customer declares without any level of inquiry or verification. 
  • Assess the reasonableness of the declared expenses against a consistently used minimum benchmark.  
  • Use a pre-populated benchmark without seeking input from your customer. 
  • Record details as to how capacity to repay was established.  
  • Rely on the lender to decide what is an acceptable living expense and therefore capacity to repay. 

Of course, we’re here to discuss this topic and any other you’d like to discuss by calling us on 1800 954 488 or via email info@saleskey.com.au.